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Don't fear disruption

5 November 2015

“Disruptive innovation” is the buzz phrase of the moment, but what does this trend mean for business – and how can it be harnessed? Ahead of the CBI Annual Conference, Business Voice talked to some of the businesses involved in a panel discussion on the topic to find out

This year the media has been full of stories of how disruptive technologies are changing the way we live – think Uber, Airbnb and the growing success of crowdfunding. But while these innovations are challenging existing business models, it’s not just about start-ups.

A panel discussion at this year’s CBI Annual Conference features relative newcomers, established innovators and traditional companies that have chosen – or been forced – to adapt. And they are all benefiting from new ways of working.

The phrase “disruptive innovation” can therefore be seen as a rallying cry to companies of all sizes to watch for competitors in the least likely of places, and respond in kind or risk losing out. The biggest difference between the winners and the losers seems to be one of mindset: the winners put customer needs before business needs; are open to change; and willing to adapt.

These are the overriding similarities between the UK bosses of three disruptive companies in the spotlight – all of whom will be taking part in the CBI debate.

Customer focus

As managing director of Amazon UK, Christopher North is part of a company that has successfully disrupted the retail and publishing industries – and is now going after TV and music. But North insists the reasons for that success are based on sticking firmly to the values outlined in founder Jeff Bezos’ first letter to shareholders in 1997 – which it has published in every annual report, every year since.

“We don’t wake up and think ‘what can we disrupt today’,” says North. “We wake up and think about three principles: customer obsession, long-term focus and invention. Now if you’re going to invent on behalf of your customers and take a very long-term view, inevitably that’s going to lead you to do some things that look very radical.”

“We try to focus on how to make the world a better place, rather than on how we hit our profit numbers,” agrees Jayne-Anne Gadhia, chief executive of Virgin Money. She points to the company’s high-street lounges which provide community spaces that are frequently used by charities, schools and local businesses; the Virgin Money Foundation, currently focused on the north east, which funds local community projects; and the online donation platform, Virgin Money Giving.

And when it comes to developing new products and services, she explains that the Virgin Money approach is based on empathy with customers.

“For many years we have tried to operate a concept we call ‘the kitchen table test’. It’s one thing to create a new product behind a desk, in an office. For me, the real test is how a product feels when you see it for the first time, perhaps on a Saturday morning, casual and bleary eyed, with the family at the breakfast table.”

The root of innovation

James McClure, UK managing director of international room rental website Airbnb, also talks of deep-seated long-term and social values driving the business.

“We’re trying to create a world where people can feel like they belong anywhere,” he says. This is at the root of all its innovation, he adds, not technology – which tends to get the credit.

“Technology can be handy to solve a certain issue, but as we try to understand our hosts and our guests and where the pain points are, improvements might simply be down to marketing or helping hosts on a one-to-one basis to make the experience for the next person who comes to stay that much better.”

McClure isn’t all that keen on the term “disruptive”. “If you’re the disruptive kid in class that means you’re distracting everyone else so that they can’t get on.”

He believes the popularity of Airbnb has been incremental to the hospitality industry – acting more as a substitution for staying with friends and family, and spreading tourism revenues into areas that don’t traditionally have hotels.

He points out that Airbnb’s approach is not all that dissimilar from other hotel companies which are diversifying in order to cater to different tastes.

Innovation culture

But not every business has the capabilities to drive innovation throughout their organisation. And a recent CBI policy paper From follower to leader: Mapping the UK’s path to innovation leadership highlighted that companies needed to invest in effective management techniques to create their own innovation culture.

“Looking at long-term potential takes a fair amount of discipline and it can be hard to get your head out of the everyday,” according to North, who says Amazon has various processes to force executives to “focus on ideas that might only make sense over three, five or seven years”.

Virgin Money has introduced the concept of “curvy thinking”. Gadhia explains: “We ask the Exec each week what they’ve done that’s ‘curvy’ – rather than the normal more linear approach that we can all fall into in the world of banking.”

She adds that continual innovation is extremely important, as the pace of change in society brings new opportunities for the bank – and risks from criminals. “We need to be ahead of all that all the time,” she says.

“I don’t think we’ve even scratched the surface of innovation in banking. Years ago, when I worked for RBS, I used to be genuinely disappointed to hear Fred Goodwin saying that he felt that all innovation in banking was done.

“Digital developments mean that we can now move cash at the touch of a button and contactless cards mean we can buy our coffee and more at the blink of an eye. But there is much, much more to come.”

Amazon’s North is equally convinced there is no end to the innovation pipeline – whether that’s improving existing products or services, opening up a platform to third parties or thinking up something new.

He adds: “The only limiting factor for us is talent.”

Nevertheless, he argues that being able to wait two or three years for an idea to pay off, taking risks and accepting failure all give Amazon “a huge advantage over a company that is focused on the next quarter.”

He implies that there is nothing stopping other businesses from creating the same focus on innovation. So the challenge is set for more businesses to reinvent their own business models.

After all, says North, “If you really want to be a big success in the business world, you can’t just copy what everybody else is doing.”